The last 30 years have seen the Australian economy make a steady departure from manufacturing and open up to international trade. Procurement and supply chain consultants have been central to this market evolution – providing advice to companies on new technology, sourcing goods from new countries and improving internal procedures.
As a result, the industry has been growing, thanks in particular to the demand from government and retail sectors. According to the recent IBIS report, the industry’s revenue is set to rise at an annualised rate of 4.4% over the five years through 2016-17, to reach $1.6 billion.
Industry challenges: technology and tax
The procurement industry is also highly fragmented, competitive and like so many others, including Tax and Accounting, still coming to grips with digital disruption. Whilst 85 percent of the industry sees digital transformation as the way of the immediate future for the delivery of services through cloud-based applications, RPA, big data, mobile computing and advanced analytics, only 32 percent currently have a formal digital strategy and even less have the resources and competencies in place to execute one. (Source: Hackett Group).
Adding to this pressure are the recent global tax and financial reforms, which carry tougher penalties for non-compliance. Reliance on complex, time-consuming manual processes to calculate and apply the appropriate tax rate to transactions is unsustainable and leaves companies exposed to significant risk and errors, potentially in breach of their legal obligations, and their employees taken away from more valuable work.
ONESOURCE and SAP Ariba: a global solution
At the recent SAP Ariba Conference in Sydney we caught up with Chris Carlstead, Managing Director of Indirect and Property Tax for Thomson Reuters, and our own Managing Director of Tax and Accounting for ANZ, Ben Scull, about how the ONESOURCE SAP Ariba solution can help the Australian procurement and tax industries overcome these issues.
Chris acknowledges, “tax has been a challenge for the procurement and supply chain customer group for some time. Rates around the world are changing constantly.” In the US alone, there are over 15,000 different tax jurisdictions and just last year over 5,000 tax rates and rules changes. “This complexity increases exponentially as you expand your business globally.”
Inability to keep pace with these changes and deal with the attendant intricacies has major implications, as Chris relates:
“Every transaction – big or small – has a tax event. The government holds both the buyer and seller responsible for getting it right and let’s be honest – getting tax right is not easy. In fact, it is complex. And getting it wrong can be expensive.”
Through the ONESOURCE solution, “by introducing tax automation”, Chris explains, “you are able to remove that complexity as a concern in that transaction flow, and honestly make it simple to conduct business.”
What next for the Australian market?
Ben highlights a number of challenges currently facing our local market:
“In Australia we’ve always thought the treatment of indirect tax as being pretty simple. Our GST rate has stayed at 10%. The challenge procurement teams are now facing is that the scale of purchases is so large that any small tax error is costing the business significantly.”
This factor is undermining the whole purpose of procurement, which, as Ben states, “is to ensure the end to end supply chain is as efficient and cost effective as possible.”
Whilst Australia’s tax regime has been relatively stable, when Australian companies extend into markets outside of Australia, especially, as Chris notes, “those with traditionally complex environments like the US, Brazil or China – then they have to comply with very complex tax regulations, and are faced with dealing with those challenges as part of their everyday business.”
And this is becoming more common for companies through the surge of the digital economy:
“Through the advancement of cloud technology and APIs, organisations that would have perhaps remained localized in the Australian market, are turning into multinational companies overnight.”
Fortunately, the ONESOURCE solution can resolve the both tax leakage factor and the idiosyncrasies of indirect tax regimes in other countries. And as Ben observes, this “ultimately leaves the business in a much more profitable position.”
Both Ben and Chris agree that Australia could alter its GST regime in the future and need to be prepared for this. With many countries making changes to their indirect tax laws to boost government revenue streams, in what Chris describes as “a catching trend ”, he predicts that: “Australia may also find itself in a position where we decide to reinvent ourselves and now is the time to take advantage of it.”
Looking beyond procurement
Procurement, Ben notes “is one just small area now that we can help companies be confident that they are compliant.” Companies need to become more vigilant in meeting their tax compliance obligations, and this is causing much apprehension:
“Many companies are nervous about the government’s tax transparency initiative, Justified Trust, because there are so many systems that tax impacts, for example an organisation that might have an ERP system, a procurement system, a travel system, an expenses system, and e-commerce platform and all of these attract some type of indirect tax. And it is the responsibility of the organisation to ensure that they are getting it correct every time.”
ONESOURCE offers a suite of tax technology solutions – covering everything from BEPs, Transfer Pricing, and Indirect tax. It was developed to help organisations navigate the changing tax landscape. As Ben sums up: “We understand the pressures faced by corporations and we are serious about helping them meet their compliance and reporting challenges by giving them back invaluable time and resources to focus on strategic needs of the business.”